The Saudi Arabian Monetary Authority (SAMA) is stepping up its investigation into central bank digital currencies (CBDCs), although it has not yet disclosed any plans to implement such a currency.
The bank announced that it was working on a phase of a project that “focuses on domestic wholesale CBDC use cases in conjunction with local banks and fintechs” in a bulletin that was issued on January 23.
Nevertheless, it was revealed that there had been no definitive decision made to introduce such a digital currency in the Middle Eastern country.”
SAMA emphasises that despite the fact that no decision has been taken on the implementation of CBDC in the Kingdom, it is continuing to concentrate on researching the advantages of introducing CBDC as well as the possible hazards associated with doing so.”
SAMA is doing research on numerous areas of a state-issued digital currency, including the applications of a CBDC-based payment system, the economic effect of the currency, and the preparedness of the market.
In addition to this, it plans to examine the relevant legal, policy, and regulatory aspects.
This action is being taken as part of Saudi Arabia’s Vision 2030 programme, which aims to lessen the kingdom’s reliance on oil, diversify its economy, and expand public service industries such as healthcare, education, infrastructure, leisure, and tourism by the year 2030.
The governor of SAMA, H.E. Fahad Almubarak, said that local banks and payment businesses would play a significant role in the CBDC project and its execution.
In 2019, SAMA was able to carry out the CBDC experiment known as “Project Aber” with flying colours.
It carried out this investigation in conjunction with the Central Bank of the United Arab Emirates in order to determine whether or not blockchain technology may play a role in international financial transactions.
Late in the year 2020, the banks published a report detailing their research and coming to the conclusion that a dual-issued CBDC was technically viable for facilitating cross-border payments and presented a “significant improvement over centralised payment systems in terms of architectural resilience.”
There is no information available on the technology that underpins the Saudi CBDC; nevertheless, CBDC Tracker implies that it is built on the Hyperledger Fabric developed by the Linux Foundation.
The Atlantic Council, a think tank based in the United States, reports that as of right now there are 11 nations that have completely implemented a CBDC and 17 countries that are conducting pilots.
The vast majority of those that have already begun operations are located in the Caribbean, with the exception of one in Nigeria.
The value of the Argentine Football Association Fan Token (ARG) has significantly decreased as a result of Argentina’s shocking loss to Saudi Arabia in the first match of the FIFA World Cup by a score of 2-1. This is in line with the expectations of the country’s devoted soccer supporters, who believed that Argentina would win its opening match.
The information that was supplied by Coingecko indicates that the price of an ARG token before to the beginning of the match was $7.21.
However, as a result of the soccer team led by Lionel Messi’s poor performance, the price of the token fell by 31% to reach $4.96 by the time the game was over. It then rose to $5.22 at the time this article was written, but it had already reached $5.22 when it was written.
On the other hand, the floor price of “The Saudis,” a Saudi Arabian-themed nonfungible token (NFT) collection that is unrelated to the soccer team, increased by 52.6% over the same period of time, going from 0.196 Ether (ETH) to 0.3 Ether before leveling off at a price of 0.225 Ether, which is approximately $250 in value. “The Saudis” does not have any connection to the Saudi Arabian national soccer team.
On the Socios platform, which is a blockchain-powered fan engagement platform, CHZ operates as a native ERC-20 token. Socios is one of the most prominent factors behind the recent growth in the number of sports-fan tokens.
Despite the fact that the tokens do not represent ownership in the teams, buyers of them are provided access to certain awards and the opportunity to vote on certain decisions made by the teams that sponsor them. This is the case even if the tokens do not reflect ownership in the teams.
In the recent past, there has also been an increase in demand for fan-based tokens in the business of athletics.
Since January 2022, the volume of token sales has climbed by more than 250% on a month-to-month basis on average. This growth can be traced back to the beginning of the year.
Despite the fact that they were not designed to be used in this manner, it seems that some individuals have understood the tokens as a way to indirectly gamble on the success of the teams who are utilizing them.
The value of the tokens may also be impacted by occurrences and tendencies that are unrelated to the success of specific soccer teams. For example, the natural ebb and flow of cryptocurrency markets as well as breaking news may have an effect on the value of the tokens.
In May, the blockchain-based decentralized smart contract platform Algorand became the first official sponsor of the FIFA World Cup to be powered by blockchain technology.
The final round of the competition is set to take place on December 18 this year.
Through the Contour platform, HSBC conducted a blockchain-based trade finance transaction between SAIC Motor, a Chinese car manufacturer and Taajeer Group, the exclusive agent for MG cars in Saudi Arabia.
With its help from the Contour platform, it would significantly increase the speed of dealing with paperwork. HSBC noted that by using distributed ledger technology has the potential to revamp the trade finance sector by slashing transaction times to less than 24 hours from the present five to ten days.
“The Contour platform enabled end-to-end digitisation of the credit documentation required for Taajeer to import a shipment of cars from SAIC in a process that is up to 10 times faster than using physical documents.”
Chaker Zeraiki, the head of global trade & receivables finance at HSBC UAE, stated:
“Our digitizing at scale means making customers’ lives easier and, with Contour it means we’re cutting costs, reducing risk and speeding up trade. Bringing these benefits to the automotive sector and Saudi Arabia are a measure of our international connectivity and our global leadership in trade banking.”
Contour seeks to digitize the worldwide trade finance industry worth $53 billion through decentralized technology by integrating digital networks across present fragmented ecosystems and trade routes as a blockchain trade finance network.
Carl Wegner, Contour’s CEO, pointed out:
“This transaction marks an important milestone in the Middle East’s automotive sector, proving that distributed ledger technology is successfully transforming the trade finance ecosystem.”
The blockchain-powered trade finance transaction is a first of its kind on Saudi Arabian soil, and it is seen as a stepping stone towards the nation’s Vision 2030 initiative of becoming a regional trade hub.
HSBC has emerged as a notable facilitator of blockchain-based trade transactions.
For instance, the leading British multinational investment bank and financial services holding company partnered with Wave to execute a blockchain-powered trade between China and New Zealand, Blockchain.News reported.
Nearly 3 million citizens in Saudi Arabia have entered the crypto space over the past six months, according to a study by KuCoin.
To explore the adoption and penetration of cryptocurrencies in Saudi Arabia, crypto exchange KuCoin released an “Into The Cryptoverse Report”. The study unravelled sustainable interest among crypto investors in Saudi Arabia. Per the report:
“51% of crypto investors invest because they believe it is the future of finance, while 44% believe that cryptocurrencies can bring them higher returns in the long run compared to other types of financial investment.”
Over the last six months, 14% of the adult population entered the crypto space by either trading digital assets or owning them. Furthermore, 17% of adults depicted crypto curiosity and were likely to invest in cryptocurrencies in the next six months.
New market entrants were going through the roof, with the report stating:
“The high proportion of new market entrants is unique to Saudi Arabia, as 76% of crypto investors have less than one year of experience in crypto investment, including 49% of those who first started trading cryptocurrencies in the past six months, suggesting strong demand for crypto education in the market.”
Despite the onset of the bearish market in the second quarter of this year, some crypto owners in the nation still showed confidence in their investments. The study also highlighted:
“In the second quarter of 2022, 31% of crypto owners in Saudi Arabia said that they would keep their crypto balance as is rather than increase their investment.”
However, the ratio of gender inequality is a bit high when it comes to crypto investment because 63% are men and 37% are women. Nevertheless, women investors depict a more practical mindset by looking at realistic benefits. The survey stated:
“48% of female crypto investors are motivated by its profitability in the long run, and 42% of females invest in crypto to gain passive income.”
With 42% of Saudi crypto investors seeing the profits accrued as a stepping stone toward improving their families’ living conditions, the KuCoin study found out that these unique aspects were opening up new horizons and possibilities for the cryptocurrency market in the nation.
Meanwhile, Argentinians have been seeking shelter in stablecoins following the resignation of the economy minister, Blockchain.News reported.
The Saudi Arabian Digital Academy has partnered with the Bitcoin Satoshi Vision (BSV) Association to establish a new blockchain academy in the country.
Billed as the first Blockchain Academy in the entirety of the Middle East, the announcement disclosed more details with the plans from the academy by providing blockchain learning and development resources for a variety of audiences – including developers, students, start-up entrepreneurs, business executives, and government agencies representatives.
The Saudi Digital Academy is a government-sponsored initiative that has a strong focus on human capital development related to tech and communications for clients. The Blockchain Academy will be centred on the BSV Blockchain and its capabilities as an enterprise-grade blockchain network that can host a number of applications and facilitate transactions at a meagre gas fee.
“Since the initial academies announced at our launch event in October 2021, we continually look to add new fields of learning. Given the high interest in blockchain technology, we are proud to work with BSV’s team to bring world-class blockchain training to Saudi Arabia in this landmark initiative for the Middle East,” said Eng. Faris AlSaqabi, Deputy Minister for Future Jobs & Capabilities at MCIT.
“Because the Fourth Industrial Revolution involves many emerging technologies, the SDA seeks to attract multiple digital academies in order to provide training across all fields that will be vital to Saudi Arabia’s digital transformation,”
While the purported Riyadh-based Blockchain Academy will be the first in the region, the Saudi Digital Academy aims to establish many more related academies.
With many trusting blockchains as a vital tool in redefining education, the receptivity of sovereign nations to crypto is generally at a low ebb, considering the competition they pose to sovereign fiat currencies. However, many countries, including China, are tapping the potentials of blockchain to advance new Internet of Things (IoT) functionalities in their countries.
The first blockchain school in the Middle East will open in Riyadh, Saudi Arabia, according to an announcement by the BSV Blockchain Association. The new institution will reportedly provide training and development tools for government organizations and enterprises interested in adopting or experimenting with blockchain technology.
Per the announcement, the Saudi Blockchain Academy (SDA) will work with the Swiss-based Bitcoin SV (BSV) Blockchain industry association to educate experts about new technologies, assisting in implementing Saudi Vision 2030.
The Ministry of Communications and Information Technology (MCIT) of the Kingdom of Saudi Arabia established the SDA as a major national project to develop both human capital and digital skills for the future and prepare its youth for employment in communications and information technology sector.
The BSV association and SDA will collaborate through Riyadh’s new blockchain academy to provide learning and development resources for various audiences, including developers, students, startup entrepreneurs, business executives, and government agency officials.
Blockchain technology has seen a wide range of potential applications in many areas such as financial services, healthcare, and telecommunications, among others. Many big tech companies, including Google and IBM, are actively participating in developing blockchain-based applications.
Per the announcement, the school will focus on the BSV blockchain and is part of a growing number of sector-specific educational programs launched by the SDA. Eng. Faris AlSaqabi, Deputy Minister for Future Jobs & Capabilities at MCIT said:
“Since the initial academies announced at our launch event in October 2021, we continually look to add new fields of learning. Given the high interest in blockchain technology, we are proud to work with BSV’s team to bring world-class blockchain training to Saudi Arabia in this landmark initiative for the Middle East.”
Related: Crypto firms ignore Africa at their peril as continent set for major adoption
Several nations have embraced blockchain technology and digital assets in the Middle East with a more progressive perspective. Several regulators have pushed for a slew of crypto-friendly laws in various countries in the region.
In Sept. 2021, the UAE’s local authorities unveiled a new regulatory framework that encourages cryptocurrency trading and related activities in Dubai’s economic free zone, potentially laying the groundwork for wider adoption and innovation throughout the country. As reported by Cointelegraph, the Emirates Postal Group, or EPG for short, announced that it was the first postal organization in the Middle East and North Africa to issue digital-collectible stamps.
The World Blockchain Summit in Dubai hosted an exhibition boxing match between top cryptocurrency traders and influencers for the WBC Crypto Belt. The fights were supported by a charity event, featuring an auction of memorabilia including digital currency assets and nonfungible tokens (NFTs).
What started off as a conversation for a friendly match with a small audience, saw the involvement of two-time World Boxing Champion Amir Khan and the Super Boxing League (SBL) as the organizer, in association with ByBit crypto exchange and World Boxing Council.
Amir khan crypto fight night. 2 of the biggest crypto traders @RookieXBT vs @loomdart go head to head in a exhibition fight, also the heavyweight @wbcmiddleeast title fight. Stay tuned for more info. @BillDosanjh @amirkhanpromo @SBLHitHarder @DubaiSC @dubaitourism @arabnews pic.twitter.com/6V2Yrx48SY
— Amir Khan (@amirkingkhan) September 13, 2021
The event saw friendly boxing matches between prominent Crypto Twitter entrepreneurs such as Luke Martin (@VentureCoinist) Vs. Louis (@barneytheboi) and RookieXBT (@RookieXBT) Vs. loomlock.eth (@loomdart). The winners of the events were Louis and RookieXBT respectively, with RookieXBT taking the WBC Crypto Champion belt.
WBC Crypto Champion
hits different pic.twitter.com/XXKgEEgClY
— RookieXBT (@RookieXBT) October 16, 2021
Here’s the Cointelegraph footage of RookieXBT’s knockout moment:
Aaaannnnddd your winner is @RookieXBT. He wins the first-ever WBC Crypto Belt! pic.twitter.com/Q60XJ0ovzr
— Cointelegraph (@Cointelegraph) October 16, 2021
According to a conversation with Cointelegraph at the WBS press conference, the crypto traders-turned fighters have trained for months day in day out, “no parties, no drinks, just hard work.” In addition, the boxing match attracted many crypto enthusiasts across the world that participated in the charity event, which will be donated to the Amir Khan Foundation.
Khan, too, shared his excitement about SBL’s involvement with the crypto community:
“By associating with crypto, we will further augment our endeavour to reach like-minded groups who believe in innovation and transformation.”
Related:UAE regulators approve crypto trading in Dubai free zone
In an ongoing bid to showcase Dubai as the future hub of blockchain, on Sept. 22, financial regulators in the United Arab Emirates officially approved the trade of cryptocurrencies in Dubai’s economic free zone.
A Cointelegraph report from Sept. 23 shows that the Dubai World Trade Centre Authority (DWTCA) signed an agreement with UAE’s Securities and Commodities Authority (SCA) to allow regulated trading of crypto assets within the DWTCA free zone.
Citing the development, SCA acting CEO Maryam Al Suwaidi stated “DWTCA is looking to support businesses underpinned by blockchain and cryptographic technologies.”
Global oil giant Saudi Aramco has denied reports stating that the company intends to mine bitcoin in the foreseeable future.
Initial Claims of Bitcoin Mining Activity
Reports had surfaced in recent days that Aramco intended to launch bitcoin mining operations. Brazilian bitcoin miner Ray Nasser had posted on YouTube that his company was negotiating with Aramco to utilize excess energy produced by the Oil company to mine BTC.
“We are negotiating with Aramco. All black liquid [oil] that comes out of the desert belongs to this company. All the flared gas they’re not using, and that’s public information, I can tell you, it’s enough to ‘power up’ half of the bitcoin network today, from this company alone,” he stated.
Aramco swiftly denied these claims in a statementissued on Monday.
“With reference to recent reports claiming that the company will embark on bitcoin mining activities, Aramco confirms that these claims are completely false and inaccurate.”
Bitcoin mining requires a large amount of energy which Aramco has readily supply. The company produces a significant chunk of the world’s oil supply and can channel energy from the gas flaring process towards bitcoin mining with minimal operating costs.
Some oil companies have looked to leverage this opportunity by using excess gas power to mine bitcoin and cryptocurrencies. For example, an American mining company was reported to have shipped portable bitcoin mining equipment to oil and gas firms for mining activities.
Aramco and Blockchain Technology
Aramco is no stranger to blockchain technology and currently deploys DLT within its system. It uses the technology within its supply management operation to standardize business processes and increase efficiency while reducing costs.
In addition, the oil giant has invested in two blockchain projects: Data Gumbo and VAKTthat aims to develop management and automation of new contracts and invoices. This investment shows the company’s commitment to taking a foothold in the fast-growing blockchain industry.
However, launching a bitcoin mining operation could be tricky giving the recent commitments of the Saudi oil company. Aramco revealed in 2019 that it was committed to achieving a zero net gas flaring operation by 2030. Bitcoin mining has its controversies with energy consumption and it remains to be seen if the oil giant would be willing to reconsider its current stance in the future.
The Saudi Arabian Oil Company (Saudi Aramco) had stirred interest among crypto enthusiasts last year after investing $5 million in a blockchain-based oil trading company Vakt. While this move aimed to digitize and streamline post-trade processing, Saudi Aramco was also rumored to undertake Bitcoin mining activities.
However, Saudi Arabia’s state oil company released an official statement to dismiss the ongoing rumors around mining Bitcoin. It said:
“With reference to recent reports claiming that the company will embark on Bitcoin mining activities, Aramco confirms that these claims are completely false and inaccurate.”
Many governments, including China, have recently unleashed a crackdown on home-grown crypto mining activities, forcing businesses to find refuge in other crypto-friendly countries.
On the other hand, Middle Eastern geographies such as the United Arab Emirates and Saudi Arabia continue to test the latest innovations around cryptocurrency. The Central Bank of Bahrain recently issued a license to an in-house crypto exchange for legally operating within the province.
Related: UAE to experiment and launch an in-house digital currency
Saudi Aramco has an extensive history of investing in blockchain firms. As reported by Cointelegraph, a Saudi Aramco Subsidiary was part of a $6 million deal with Data Gumbo Corp. for developing a commercial blockchain network.
Just last month, the Central Bank of the UAE announced its 2023-2026 strategy that highlighted concrete steps to experiment and launch an in-house digital currency. As a part of this initiative, the UAE government intends to implement a digital identity system “to bolster financial inclusion and easy access to financial services.”
What do Saddam Hussein and Bitcoin have in common? According to the government, they both have ties to terrorism. In reality, both threaten the United States dollar (USD) and its global hegemony.
“One man’s terrorist is another man’s freedom fighter.” — Gerald Seymour
Throughout this article, we are going to peel back the layers of inflationary monetary policy to be able to answer these three questions:
1. Why does the Federal Reserve target inflation?
2. What do the military and counter-terrorism have to do with protecting the inflation narrative?
3. How come bitcoin sees such strong opposition from certain individuals within the government?
Before we can answer these questions thoroughly, we must take a step back and delve into the world of money. This will give us the building blocks to better examine why the government does what it does. To do so, we must first ask the question: What is money?
The broad definition of money tends to revolve around “an economy’s generally accepted and recognized medium of exchange that is used to facilitate trade for goods and services.” In layman’s terms, money is the store of value intermediary between transactions. If money did not exist, trade would become significantly more challenging. A trade would require both parties to have the exact goods that each other needs. For example, John is a fisherman and Michelle is a carpenter. What’s to say Michelle needs fish at the same time that John needs a table? Additionally, how much fish is this table worth?
Money allows individuals to swap resources or services for a store of value, regardless of whether we have an immediate use for it. This has allowed our civilization to expand and grow much more efficiently than it otherwise would have, as both domestic and international trade becomes almost impossible without money.
For the average person, there are two methods to obtain money:
1. We must expend time and energy in return for money (e.g.., work, labor, services).
2. We must trade goods or resources in return for money. However, to obtain these goods or resources, we must have previously expended time and energy.
Therefore, in both scenarios, to obtain money, we must expend time and energy. With this, we can conclude:
Money = Time + Energy
With this simple equation in mind, we can better understand the inner workings of the monetary system.
Our Monetary System
Our economy operates on a centralized monetary system, where at the top we have the Federal Reserve (the Fed). The role of the Fed is to regulate the U.S. monetary and financial system through monetary policy. This gives the Fed the ability to control the money supply. This ultimately influences whether we are in an inflationary or deflationary environment, regardless of what should naturally occur.
Although the Fed was created as a private entity, we don’t have to look much further than the board of governors to realize that it is just an extension of the government. The board of governors, which guides decision-making, is at the heart of the Federal Reserve and is a government agency. Therefore, although the Fed appears to be independent and impartial, the government has a significant influence over the Fed’s decision-making and, subsequently, monetary policy direction.
Considering the Fed’s role in regulating the U.S. monetary system, one could conclude that it would strive for the USD to maintain sound money characteristics. However, since the introduction of the Fed, the idea of sound money has slowly but surely been undermined and destroyed, with a complete break occurring when the U.S. departed from the gold standard in 1971. Rather than the dollar being somewhat backed by gold, it is now backed by debt. Therefore, it becomes relatively easy for the U.S. to expand the money supply.1 The Fed uses four key levers to control the money supply:
a) Open Market Operations (OMO): The Fed has the ability to purchase short-term treasury bonds from the open market. In doing so, the commercial banks who sell these treasury bonds receive payment in the form of increased bank reserves. This serves two purposes. First, this artificial demand for short-term treasuries decreases short-term interest rates. Secondly, with increased bank reserves and lower short-term rates, commercial banks tend to lend more freely. This results in an increase in the money supply since banks operate on a fractional reserve system, whereby they only need to hold a fraction (generally 10%) of their total deposits/loans in reserves. Therefore, a $1 increase in reserves can result in a $10 increase to the money supply.2
b) Quantitative Easing (QE): QE is usually only reserved for times of economic stress, otherwise it is very similar to OMO. The main difference is that with QE, the Fed targets long-term, instead of short-term, treasury bonds. This causes an artificial suppression of longer-term interest rates, as well as a potential increase in the money supply.
c) Discount Rate: The Fed has the ability to adjust the discount rate. By lowering the discount/interest rate that commercial banks have to pay on short-term loans, the Fed makes borrowing more favorable and, as borrowing increases, so does the money supply. As explained above, banks do not have to have 100% collateral-backed loans. Therefore, any loan created has the potential to cause an increase in the money supply.
d) Modifying Reserve Requirements: The Fed has the ability to modify reserve requirements. This modification refers to the amount of reserves a bank must hold against deposits in bank accounts. By lowering the reserve requirements, banks have the ability to create more loans, which can result in an increase in the overall money supply.
In all four examples, when a dollar is created through monetary expansion, it is backed by nothing but a liability. Therefore, an increase in the money supply is either an expansion of the Fed’s balance sheet or a liability on behalf of the bank that has lent out the money.
In addition to the many levers the Fed has in its arsenal, the Fed openly targets a 2% year-over-year inflation rate. “The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Fed’s mandate for maximum employment and price stability.”3 In layman’s terms, the Fed seeks to achieve a 2% annual increase in the price of goods and services alongside maximum employment and price stability.
If we intuitively think about what the Fed is saying, something doesn’t seem to add up. First, it doesn’t make sense that the Fed is targeting stable prices. We live in a world where we constantly strive to get more for less by increasing efficiency and productivity. For instance:
● Cars were invented to reduce time spent traveling.
● Mass production was introduced to reduce the cost of goods to the consumer.
● The internet was born to aid communication and increase information-sharing and consumption.
● Spotify was created to consolidate music into one easy-to-access space.
● Netflix was founded to allow anyone access to movies without having to travel to the movie store.
And the list goes on. At no point has human ingenuity been used to get less for more, with the exception of inflation targeting.
Although it is possible to see prices rise (natural inflation) through structural demographic changes or supply-and-demand imbalances, prices tend to fall in the long run. However, by targeting inflation, the Fed is actively aiming for a steady increase in prices over time. They are able to achieve this through monetary expansion, which creates a slow decay in the purchasing power of the currency and, in turn, an increase in the cost of goods, services and assets. This is not natural. Instead, as technology advances and we see increased productivity, prices should naturally decline, and the currency should strengthen, allowing us to buy more for less.
Additionally, is unemployment such a bad thing? With a strengthening currency and decreasing cost of goods and services, the cost of living should also decline. In turn, we should be able to work less with a greater output. This ultimately allows us to achieve a higher standard of living. Under this lens, unemployment may not be the bad egg it is made out to be. Instead, we should view decreasing prices alongside reduced work hours and a slow increase in unemployment as a potential sign of a healthy, happy economy. So, what are the effects of inflation, and who is it benefiting?
What Are The Effects Of Inflation?
As explained above, the Fed, through its arsenal of tools, has the ability to influence the money supply with the goal of hitting specific inflation targets. However, this targeting comes at a cost. As mentioned above, monetary expansion to reach inflation targets negatively affects purchasing power, causing an increase in the cost of goods, services and assets. However, as this destruction of purchasing power occurs incrementally over time, it can be difficult for the average person to grasp inflation’s adverse effects. Irrespective of the societal and economic impacts,* the four main monetary side effects of inflation are:
1. Dilution: Creating more dollars backed by debt does not add value to the economy. Instead, it dilutes the currency that is already in circulation. For example, if a pizza is cut into four slices, doubling the money supply would not be equivalent to doubling the amount of pizza. Instead, it would be equivalent to cutting those four slices in half to create eight slices. We have not gained any additional pizza. We just have more slices.
2. Interest: As explained above, to increase the money supply, a liability must be created. When this is done, there has to be interest paid on this liability. For example, when the Fed increases bank reserves for commercial banks, it pays interest on excess reserves (IOER). Therefore, in addition to the dilution of the currency, a liability with interest payments is created. Not only has inflation diluted our existing currency, we now have to divert productive capacity to pay down debt plus interest.
3. Loss of Accurate Measurement: Currently, we measure assets, wealth, goods, services, income and so on in dollars. The challenge with using the USD as a medium of measurement is that, as inflationary monetary policy destroys purchasing power, we see a change in the value of the dollar. This inadvertently inhibits our ability to use the USD as an accurate measuring stick. The USD would be a great form of measurement if its supply was stable and consistent. However, this is unfortunately not the case. Using the dollar as a medium of measurement is like trying to build a house using a ruler, where the measurements on the ruler keep changing unexpectedly and unpredictably. I doubt the house would be structurally sound.
4. Distortion of Economic Indicators: The USD is a crucial indicator for economic decision-making. However, by performing inflationary monetary policy and masking economic stress through monetary expansion, we hinder our ability to obtain insightful economic information when analyzing the USD. Consequently, we are impeding the economy from error-correcting accurately and, in turn, hampering its ability to adapt, evolve and innovate effectively.
* For a more detailed breakdown of societal and economic impacts of inflation, check out “When More Isn’t Better: Inflation in the 21st Century.”4
With these side effects of inflation in mind, it can be difficult to look favorably at inflation. Additionally, it makes us question that if our dollar’s purchasing power is slowly decaying over time, is an increase in wealth in dollar terms all that it is made out to be? One way to view the reality of our situation is to change the medium of measurement. For instance, below is a chart of the S&P 500 versus the S&P 500 divided by the Fed’s balance sheet. This alternate measurement takes into account monetary expansion rather than just relying on the dollar.
Source: Equity Growth Reality Chart5
As we can see, the 175%+ growth in the S&P 500 over the last 12 years is, in reality, more likely a significant loss when we account for monetary expansion. However, it should be noted that many of these dollars created on the Fed’s balance sheet may never reach the public domain, and, therefore, it is difficult to determine the exact impact on the purchasing power of the dollar. This may mean the loss is not as drastic as -65%; however, the difference is still a far cry from negligible.
Why Does The Federal Reserve Target Inflation?
If we distill everything up to this point, it can be tough to understand why the Fed would target inflation when it has such adverse side effects. However, if we dig into the two main benefactors of inflationary monetary policy, we can better understand why we see such policies.
Government
As the Fed implements inflationary monetary policy, the general population and businesses start to spend and borrow, causing an increase in debt consumption. With an increase in debt, we see money supply expansion and a reduction in purchasing power. Usually, with increased demand for borrowing, we would see a rise in interest rates. However, as previously mentioned, the Fed has a couple of tools in its arsenal that allows it to suppress interest rates. Additionally, by working alongside the U.S. Treasury, the U.S. is able to implement what is called financial repression.
Financial Repression
A concept introduced in 1973 by Stanford economists Edward S. Shaw and Ronald I. McKinnon, financial repression is the suppression of interest rates below that of inflation, which allows the government to borrow money at extremely low rates to fund operations.6 This greatly benefits debtors and is disadvantageous to creditors, aligning with the fact that the US is the largest debtor nation with a total government debt of $28.1 trillion.7
This suppression of interest rates is not natural and allows the treasury to obtain capital to fund operations through the issuance of treasury bonds at rates below that of inflation. This indirectly passes on the cost of borrowing onto the creditor, which, in this case, ends up being the economy. In essence, financial repression is a stealth tax on its currency holders in two ways:
1. When the Fed artificially suppresses interest rates, it negatively impacts savers (e.g., pension plans, savings accounts, fixed-income investments). Under normal interest rate environments, savers would be rewarded in the form of reasonable interest rates (i.e., they would get significantly more return on their capital). Instead, savers are punished with suppressed interest rates and this difference in performance is passed onto the government to fund its debt.
2. To suppress interest rates and drive inflation, the government has to perform OMO, QE and other inflationary monetary policies. In all three instances, we see an increase in monetary expansion. This monetary expansion causes a destruction of purchasing power, which directly impacts savers and fixed-income investors, while benefiting the debtors as it reduces their debt burden.
You may wonder why someone would ever lend money at interest rates below that of inflation. Unfortunately, this is not something that the population has much say over. The government puts such measures in place as:
● Reserve requirements. For example, international bank regulatory standards (Basel III) encourage banks to hold government debt by giving it preferential treatment for satisfying capital requirements.
● The capping of interest rates to prevent interest rates from rising above certain levels (i.e., yield curve control8).
● Increased regulation of capital movement between countries. This restricts capital from flowing out of the U.S. to more favorable options.
These tactics and regulations ensure the continual flow of capital into treasury bonds, allowing the government constant access to cash to fund operations and direct it to wherever they feel necessary.
Overall, the government benefits in two ways from inflation and, more specifically, financial repression.
Fund Itself
Through inflationary monetary policy and financial repression, the government no longer has to act in the best interest of its population. This is because it is able to fund itself regardless of whether or not it collects enough capital to fund operations through taxation. It is able to fund itself in the following ways:
a) The U.S. treasury issues government bonds to obtain capital to fund its operations. Under normal operations, commercial banks and other entities purchase these bonds and, in return, collect the interest on the money lent to the government. However, through OMO and QE, the Fed can purchase these treasuries off the commercial banks. So, in effect, the government is funding itself by issuing and selling treasury bonds to itself and using the big commercial banks as intermediaries.9
b) Through financial repression’s stealth tax, the government is able to borrow capital at rates below that of inflation, forcing the borrowing costs to be passed onto the creditor. Ultimately, this reduces the government’s debt burden and allows it to fund itself without explicitly taxing its population.
Reduction in the Deflationary Effects of Debt
The government has spent more than it has made through taxation and other forms of income in 19 out of the last 21 years.10 Since it has been running such huge deficits to fund operations, it has accumulated a vast amount of debt. As the debt burden grows, so does the deflationary pressure. Financial repression via monetary expansion and the lowering of rates allows the Fed to reduce the deflationary effects of debt.
The Banks
When the government implements an inflationary monetary policy, the second biggest benefactor is the banks. As explained above, under our fractional reserve banking system, banks do not need to be fully collateralized (i.e., they only need to have a portion of their liabilities in reserves). When the Fed lowers interest rates, we see an increase in demand for borrowing. With this increased demand, banks are able to expand the money supply by increasing the number of loans they create. In turn, they profit as they collect interest on these loans. Where it gets confusing is that this money did not exist on the bank’s balance sheet prior to the loan being created.11 When a new loan is created, the money supply expands as new money is created to facilitate the loan. It is important to highlight that most of the money in our economy is created this way and not, as most people assume, by Jerome Powell at the Fed hitting the print button.
Additionally, when the Fed performs measures such as QE, this gives the banks greater reserves to create more loans, allowing greater expansion of the money supply.12 Essentially, banks today, under the fractional reserve system, are able to create revenue from lending money that they never had in the first place. They are creating money out of thin air, and so, just like the government, they, too, are benefiting by diluting the currency.
You may be wondering, why are the banks given so much power? The banks are the government’s means of dispersing capital into the economy. When the Fed lowers interest rates, it is the banks that create loans and disseminate capital, which aids productive capacity, allowing further capitalization of the economy by the government in the form of inflation. In short, banks play a pivotal role in the government’s ability to capitalize off its population and the currency holders.
However, disbursement of capital isn’t the only benefit banks give to the government. The financial sector is one of the largest contributors to political campaigns and lobbying. During the 2020 election, Wall Street banks and financial services spent $2.9 billion in lobbying and contributions.13 Therefore, not only do the banks aid in the disbursement of newly created capital, but they also provide a substantial income stream for politicians. It is for these two reasons that the banks are given so much power.
Additionally, if we’ve learned anything from U.S. politics, it is that lobbying has a considerable impact on regulation and the legislative process.14 By lobbying, banks can influence legislation to ensure regulation is put in place, protecting their position within the financial system (e.g., strict anti-competition regulation, which reduces competitors).
From everything we have discussed, it is evident that the government no longer needs to act in the best interest of its population to receive funding (e.g., income tax, sales tax, corporate tax). It can effectively fund itself through hidden taxation in the form of monetary expansion or financial repression without its population or the currency holder’s consent. This is why the government consistently pushes the inflation narrative and continues to target increased economic productivity. The more productive a country is, the more demand there is for that country’s goods, services and currency. This increased demand leads to a strengthening of the currency. The stronger the currency, the greater the amount of monetary expansion that can be performed before its population starts to feel the adverse effects.
However, inflation is a double-edged sword. Although the government and the banks benefit immensely from inflation, alongside inflation comes debt. As mentioned previously, whenever the money supply increases so does the debt burden. This creates a negative feedback loop whereby to service the debt, more money has to be printed. This further impacts the currency holders in two ways:
1. In order for the government to continue to fund itself and keep the deflationary pressures at bay, it must further expand the money supply. This continual expansion destroys the purchasing power of the currency.
2. As the debt burden increases, the house of cards that is the financial system becomes ever more unstable. When interest rates do inevitably rise, the consequences will be catastrophic (such as that of the Asian debt crisis or Japan’s lost decade), and it is nearly always the public which pays the price as losses are usually socialized.
Unfortunately, this doesn’t seem to stop the government from continuing to do anything it can to ensure that the inflation narrative continues.
Modern-Day Slavery
Let us delve deeper into this nonconsensual taxation through monetary policy. We know from above that money = time + energy. Therefore, as inflation creates a loss in purchasing power — and financial oppression is the suppression of interest rates and the transfer of borrowing costs onto the creditor — and if this has been done without the consent of the currency holders, then this is theft of their time and energy. Although it has been banned since 1865, inflation under this light sounds eerily similar to slavery, which is also the theft of time and money.
Slavery is when an entity benefits off of someone else’s time and energy, at their expense and without their consent. It doesn’t matter whether or not the person knows. The government prefers to use the term “inflation” as it hides their underlying intent and allows them to appear to be doing what is best for the population.
This claim of slavery may sound asinine. However, in 1862, a confidential letter, circulated by English capitalists among American bankers, aptly described a monetary system uncannily similar to the monetary system we use today. The letter is below:
“Slavery is likely to be abolished by the war power, and chattel slavery destroyed. This I and my European friends are in favor of, for slavery is but the owning of labor and carries with it the care of the laborer, while the European plan, led on by England, is capital control of labor by controlling wages. THIS CAN BE DONE BY CONTROLLING THE MONEY. The great debt that capitalists will see to it is made out of the war must be used as a measure to control the volume of money; to accomplish this the bonds must be used as a banking basis.” — Charles Hazard, Hazard Circular, 186215
It is apparent that long before the current monetary system came to be, the immense control someone could wield, if they had authority over money, was well known. For if you control the monetary system, you control the economy, or as Mayer Amschel Rothschild famously said, “Permit me to issue and control the money of a nation, and I care not who makes its laws.”
Robert Breedlove explores this further with his insightful article, “Masters and Slaves of Money,” where he compares monetary expansion and its equivalent in labor hours worked.16 Ultimately, he concluded that the expansion of the M2 money supply between 1981–2020, divided by the U.S. average hourly (assuming that the average U.S. worker works 2,000 hours per year) equates to the U.S. running 11.7 million people for 40 years straight. He then expands further, “Time stolen by The Fed since 1981 is 341% more per year than the trans-Atlantic slave trade. With 23.4B hours stolen annually, The Fed could (in theory) build 2.3 Great Pyramids each year. In terms of absolute human time stolen per year, fiat currency is the largest pyramid scheme and institution of slavery in human history.”
“None are more hopelessly enslaved than those who falsely believe they are free.” — Johann Wolfgang von Goethe
If every other ordinary individual and business has to add value to society to earn money to pay its bills and operate, why shouldn’t the government? Regardless of whether or not one would classify inflation and financial oppression as slavery, most would agree that having the ability to fund oneself removes true supply and demand and, therefore, entitles the holder of that power to act in their own self-interest as opposed to the interests of others. Additionally, when that self-funding comes at the expense of the population, it can become a slippery slope to detrimental authoritarian regimes.
For example, a monopoly corporation in a small town has overarching control of its people as it is the primary source of jobs for the community. It can, therefore, create hardship through layoffs or boost morale through hiring and wage increases. This control over employment and wages cultivates conformity and prevents people from speaking out in fear of losing their jobs or being ostracized from the community. Along this same vein, any entity that controls the money supply can create economic hardship with a restriction of capital or the illusion of economic prosperity through monetary expansion. This allows for population control since, when the population starts to gain independence, or the entity’s power is infringed upon, they can create economic hardship through a monetary contraction. Alternatively, they can give the illusion of economic prosperity via monetary expansion, which additionally aids the facade that they are doing what’s best for the population and thus rebuilds the population’s confidence. At no point is the entity required to offer legitimate value to society.
To clarify, as long as the government is offering a service that provides value to its population and uses proceeds from taxation with the population’s interests at heart, taxation under traditional measures such as income tax, sales tax and corporate tax is by no means theft. Instead, taxes are a necessary part of the economy as it is through taxation that the government can obtain capital to operate and survive.
Where taxation issues arise is when we have financial oppression and inflationary monetary policy in addition to traditional taxation. In this scenario, not only are we paying tax in the form of income tax, sales tax and corporate tax, to name a few, but we are subject to currency debasement and supporting the government’s debt burden without our consent. This is effectively double taxation and allows the government to fund itself without having to offer a beneficial service to its population.
Devil’s Advocate
It is fair to play devil’s advocate and recognize that this information can be construed in a multitude of ways. In this instance, it may have been skewed to paint the government in a negative light. Additionally, one could argue that there are benefits to inflation such as:
● allowing the government to obtain capital to fund social, medical, welfare programs, and so on;
● providing capital to the economy, which can aid economic growth;
● giving the Fed the ability to dampen economic stress; and
● reducing the deflationary effects of debt.
These are fair points, so let’s dig deeper to see if the government has kept its population’s interests at heart. The old adage, “do not listen to what they say, look at what they do” seems appropriate.17
Below is a table that looks at government spending directed toward mental health and drug addiction in relation to government spending directed toward counter-terrorism. It then compares the total deaths and the dollars spent per death. As we can see, if the government was concerned about the well-being of its people, we would assume that they would direct spending toward the areas which need it most. Unfortunately, this does not seem to be the case. Additionally, if we look at the military versus healthcare spending, the U.S. spends 450% more on the military than healthcare.18
Source: The Truth Behind Government Spending Table19
Why Might The Government Be Spending So Much On Counter-Terrorism And The Military?
Before we can understand why the government spends so much on its military and counter-terrorism, we must first dig into the USD and its world reserve currency status.
Prior to 1971, the USD operated on the Bretton Woods system, a sort of gold standard. Under Bretton Woods, many foreign countries agreed to maintain a fixed exchange rate between their currencies and the dollar. In return, the U.S. agreed that every dollar in circulation was backed by and could be exchanged for its weight in gold. This agreement is what gave the USD value. However, in 1971, the U.S. dropped the Bretton Woods system and transitioned to the fiat standard, which we use today. The difference is that, instead of the dollar being backed by gold, it is now backed by nothing but debt. Internationally, this decision was not well received, and over the coming years, the dollar struggled.20 The U.S. urgently had to find a way to maintain its reserve currency status as the dollar was now under threat.
Through the middle of the 1970s, the U.S. found a way, through bilateral agreements with Saudi Arabia (the largest Organization of the Petroleum Exporting Countries, or OPEC, oil producer at the time) to influence OPEC to standardize the trade of oil, ensuring transactions were facilitated in USD.21 The petrodollar was born.22
Two benefits the U.S. has over every other country:
World Reserve Currency: Since the USD holds the global reserve currency status, most trade is made in USD. With this being the case, there is a vast amount of USD-denominated debt as countries have to obtain dollars to fund global trade operations. This constant demand for dollars to maintain/pay down USD-denominated debt and trade results in an artificial strengthening of the USD.
The petrodollar: This agreement with OPEC in the 1970s, ensuring that most oil trade was now priced in dollars, has provided tremendous benefits to the U.S. With oil being the preeminent global energy source, the need for oil is immense. Just like the world reserve status, the OPEC agreement has created a universal artificial demand for dollars, strengthening the dollar. Additionally, there is one other huge advantage the U.S. has over other countries. As oil is the preeminent global energy source, not only does the U.S. have a considerable influence over the price of oil, the U.S. can now purchase oil through the printing of dollars. These petrodollars are then recycled back into the U.S. via the sale of U.S. Treasury bonds to petrodollar nations. Ultimately, this allows the U.S. to fund itself. This system is called petrodollar recycling.
With both the petrodollar and the world reserve currency, the U.S. benefits greatly as there is this constant demand for dollars resulting in a strengthening of the currency. The U.S. government can then capitalize off this increased currency strength through monetary expansion and fund its operations. This grants the U.S. an extraordinary advantage over any other competing country as it can fund itself at the expense of another country. Any government which wants to compete globally is at the whim of the U.S. First, they have to obtain USD to purchase oil and trade. To do so, they must sell their currency in exchange for USD, which tends to devalue their currency. Second, the U.S. can capitalize off this USD currency holder through monetary policy by expanding the money supply for its own benefit. Ultimately, not only has the competing country had to devalue its currency in the purchasing of dollars, it now holds dollars that can be devalued for the benefit of the U.S.
What Do The Military And Counter-Terrorism Have To Do With Protecting The Inflation Narrative?
As I am sure it is now apparent, the purpose of the military and counter-terrorism is not to protect the people of the U.S. The military and counter-terrorism are there to aid the U.S. in its global hegemony and protect the government from any people or entities that infringe on its ability to capitalize off its currency holders.
Therefore, the best way to protect the U.S.’ global positioning is to fund the military and counter-terrorism. This will ensure global control and allow the U.S. to continue to push the inflation narrative. This explains the imbalance between mental health/drug addiction spending and counter-terrorism in the chart above. It also explains the significant imbalance when we look at global military expenditure, where globally, the U.S. has the highest military spending budget. The U.S. spends 308% more than China, which is in second place, and more than the subsequent 10 countries combined.
Source: 2020 Military Spending By Country Chart23
If the U.S. were to lose its monopoly on oil trade, we would see a significant drop in demand for the USD. This would most likely threaten its reserve currency status. If this were to play out, the U.S. could no longer capitalize off its global positioning, and it most definitely couldn’t expand the money supply to the same extent, without major repercussions and destruction of the USD’s purchasing power. Just to drive the point home one more time, this is why the U.S. is so highly incentivized to protect the petrodollar. The petrodollar helps ensure global reserve currency status, hugely enhancing its ability to continue legal theft/slavery through monetary expansion.
Where Does This Military Spending Go?
With the positioning of the USD, it is clear that they are incentivized to challenge anyone who attempts to interfere with their power. With this in mind, let’s dig into how and where exactly the U.S. directs their immense global authority and military power.
Although, first, we must detour so that we understand how the U.S. accrues power. This will allow us to understand why the U.S. does what it does when it comes to the military, a coup d’état (removal and seizure of a government and its powers), revolutions, and more.
The U.S. tends to operate in a three stage process when it comes to maintaining and growing their global powerhouse:24
1. Economic Hitmen: The big conglomerates and corporations within the U.S. send economic hitmen (EHM) into developing nations with large energy reserves. The goal is to “altruistically” offer to lend these nations money and help develop and build energy infrastructure, allowing these nations to capitalize off their natural resources. These proposals are usually under the pretense that the country will prosper and see an increase in living standards. However, there is an ulterior motive to these “altruistic” loans. EHM will overemphasize the returns of these energy projects, encouraging the targeted nations to take on significantly more debt than they’re able to support. These nations will struggle and eventually default under the debt burden. As a consolation, these U.S.-backed corporations will offer to take control of the natural resources, military and/or political decision-making capacity. If they succeed, the U.S. will expand its global resources and power (we see China pursuing a similar path with their Belt and Road initiative25). If not, they move onto stage two.
2. Jackals: When these indebted nations refuse to play ball, the Jackals move in. These are CIA-sanctioned entities in charge of staging coups, revolutions, murder, abductions and assassinations.26 Examples of this are the coup against Chile’s President Salvador Allende,27 the coup against Brazil’s President João Goulart,28 and the coup to overthrow Iran’s Premier, Mohammad Mosaddeq,29 all supported by the CIA. To the average person, these events seem like domestic unrest, although when we dig deeper, there tends to be more sinister underpinnings. Usually, these events ensure that the U.S. can continue to capitalize on the nation’s resources or its global positioning.
3. Military: Finally, if all else fails, the U.S. military moves in. The goal is to use brute force to ensure that the U.S. can continue to operate in its monopolistic ways. Military intervention is a way for the U.S. to wipe clean the current political party and put in place someone who aligns with U.S. foreign policy. Proposals for military movement tend to be under the facade of humanitarianism or counter-terrorism. This quickly gains the backing of the general population, the congressmen and the politicians and ensures that the U.S. can continue running its global powerhouse at the expense of the global population.
Within these three stages, the U.S. is able to enforce its authority globally and ensure that foreign nations comply. This may seem outlandish; however, all we need to do is watch the daily news to see global events such as these occur, time and time again. The following are examples of U.S. intervention.
Saddam Hussein
Fact: Iraq is in fifth place for largest known oil reserves, with 8.7% of the total known global reserves.30
In October 2000, Saddam Hussein announced that Iraq was going to transition to selling oil in euros. By February 2003, they had sold 3.3 billion barrels of oil, totaling 26 billion euros.31 In March 2003, the U.S., along with the U.K., invaded Iraq and overthrew Saddam. Three months later, Iraq was back to selling in dollars.
The U.S. has claimed they invaded Iraq to promote human rights as they had deep ties to terrorists such as al-Qaeda and held weapons of mass destruction (WMD). However, as there have never been any verified links between Saddam and al-Qaeda, nor any evidence supporting WMDs in Iraq, it looks more likely that their intention was to protect the petrodollar.32
Hugo Chávez
Fact:- Venezuela has the largest known oil reserves, with 18.2% of the total known global reserves.33
Since Hugo Chávez was elected president of Venezuela in 1999, he consistently threatened that Venezuela would stop selling oil to the U.S.34 In addition, Chávez regularly talked about raising oil prices, taxes and royalties so that Venezuelans could benefit from oil revenue instead of the U.S.35 Chávez did not believe that oil prices should be suppressed and that due to increasing oil demand, there was room for increased prices. However, an increase in oil prices will only benefit the oil producers, ultimately hurting the oil importers (i.e., the U.S.). Chávez aimed to use excess revenue generated by increased oil prices, taxes and royalties to be reinvested into various South American countries in a bid to increase the prosperity of Venezuela and other South American countries.
In April 2002, President Chávez was removed from office in a coup supported by the U.S. government.36 He was then forcefully asked to resign. After he was removed from office, he was kidnapped and finally replaced by Pedro Carmona, the head of Venezuela’s business confederation, Fedecámaras. This event was followed by mass protests by the Venezuelan people and certain army sectors until Chávez was returned and reinstated as president. Although there were many threats up to Chávez’s death, the U.S. was never cut off from Venezuelan oil.
Muammar Gaddafi
Fact: Libya is home to Africa’s largest oil reserves and is in ninth place for largest known oil reserves, with 2.9% of the total known global reserves.37
In 2009, Muammar Gaddafi proposed the idea of the gold dinar to the states of the African continent, a currency backed by gold and facilitated by the transition from selling oil in dollars to selling oil for gold.38 The gold dinar would be a way to divert oil revenues toward state-controlled funds and away from the U.S.
In October 2011, a NATO airstrike targeting Gaddafi loyalists forced him and his inner circle to flee. While fleeing, he was captured by Misrata-based militias and ultimately executed.39 As expected, with Gaddafi’s death also came the death of the gold dinar. Today, the majority of Libyan oil is priced in dollars.
Again, U.S. intervention reasoning was under the pretence of humanitarian interventionism. However, not only could human rights foundations not find any evidence to support this, in 2015, Wikileaks released a U.S. Department of State document emailed to Hillary Clinton in March 2011, which detailed that Gaddafi’s government held 143 tonnes of gold intended for the establishment of the gold dinar.40 The U.S. knew about Gaddafi’s plans for the gold dinar.41 Therefore, what seems more likely is that they recognized that the petrodollar was under threat of attack, and they needed to react.
With the U.S. displaying a lot of concern for human rights and terrorism, one must find it strange that they haven’t chosen to take on:
● Saudi Arabia: There have been links between Saudi Arabia and terrorism, including connections between the Saudi Royal Family and al-Qaeda.42 There has even been evidence showing that the country’s crown prince, Mohammed bin Salman, directly approved the murder of Washington Post columnist, Jamal Khashoggi.43 However, neither Presidents Trump nor Biden have shown any intent to go after Saudi Arabia.
Instead, whenever Saudi Arabian oil is under threat, the U.S. supports them. Why does the U.S. not want to take action? As explained above, the U.S. and Saudi Arabia have a deep bilateral relationship where the U.S. is not incentivized to go on the offense. Instead, the U.S. will do whatever it takes to protect the Saudis. Saudi Arabia has agreed to sell its oil in dollars, and, in return, the U.S. has agreed to give them access to U.S. arms and military protection. Saudi Arabia supplies the U.S. with a third of its oil, and between 2015–2019, Saudi Arabia alone purchased a quarter of all U.S. arms exports.44
● North Korea: In 2014, the Human Rights in North Korea Report by the United Nations Commission of Inquiry concluded that “the government committed crimes against humanity, including extermination, murder, enslavement, torture, imprisonment, rape, and other forms of sexual violence, and forced abortion.”45 Additionally, North Korea has publicly stated that it has WMDs.46 The U.S. could easily build a solid humanitarian case to infiltrate North Korea, as it did with Gaddafi. However, just like Saudi Arabia, the U.S. shows no signs of intervening. One reason the U.S. may be disinterested could be that North Korea has no proven oil reserves and, therefore, does not pose a threat to the U.S.47
As should now be evident, “do not listen to what they say, look at what they do” can give us a great deal of insight into the government’s agenda.48 We can now more easily understand why the U.S. seems significantly more interested in directing its government spending and military efforts toward protecting the petrodollar and its world reserve status than protecting human rights and the people of the U.S. Until we see a shift away from centralized monetary systems, this will, unfortunately, continue to happen.
Behind The Altruistic Curtain
Although we may never be able to answer with certainty why the U.S. went to war with Hussein and Gaddafi or chose to support the coup against Chávez, we can gain a great deal of information from their approach. Do you think it would be easier for the president to rally Congress and the general public under the altruistic premise that
● the U.S. needs to go to war on humanitarian and anti-terrorism grounds to defend its people
or, under the more legitimate rationale,
● to protect the petrodollar and its world reserve currency status, ensuring that the U.S. can continue to capitalize off its population and foreign currency holders.
Unfortunately, the former seems most likely. Hussein, Gaddafi and Chávez were directly attacking the petrodollar and the ability of the U.S. to capitalize off its currency holders. The most effective way for the U.S. to challenge them is to use its incredible global power to create a narrative relating to humanitarian/terrorism grounds, painting the so-called enemy in a negative light. This will ensure the backing of Congress and the American public, and with this backing and support, they can do what’s needed under the pretense of humanitarian interventionism/terrorism.
This misleading humanitarian/terroristic war narrative will continue as long as the petrodollar exists. In the eyes of the U.S., any threat on the petrodollar warrants a response, and no narrative supports the response better than altruism or defending one’s country. The U.S. will do anything to ensure its position is not encroached upon as a loss of the petrodollar or world reserve currency status would severely impact the U.S. and its ability to capitalize off its currency holders. This is why we see so much funding being directed toward counter-terrorism and the military, even though there is empirical evidence showing that military spending is detrimental to economic productivity and growth.49 The dollar depends on a strong military, and the military depends on a strong dollar.50 Without either, the U.S. is unable to continue its inflationary narrative.
Where Does Bitcoin Stand In All Of This?
*This piece is not so much about Bitcoin and its benefits but rather about how the U.S. operates and why Bitcoin is under threat. Therefore, I won’t go into too much detail about Bitcoin’s well-known benefits. For more information on the benefits of Bitcoin, check out: https://bitcoinmagazine.com/culture/bitcoin-illusion-of-reality.
Bitcoin has the potential to give power to individuals, capitalize off stranded energy, increase economic productivity and boost innovation.51 We could, therefore, assume that this new exponentially growing technology would be adopted with open arms. However, although we have seen incredible adoption from certain areas of the general population and forward-thinking individuals, this is not true for the government. Like Hussein, Gaddafi and Chávez, bitcoin directly threatens governments’ ability to capitalize off its currency holders. If bitcoin were to become adopted as the world reserve currency, it would be a significant threat to the U.S. and its ability to operate an inflationary monetary policy for these three reasons:
1. Fixed Supply: For the first time in history, bitcoin offers an accurate measuring stick with which to view the world. As bitcoin cannot be manipulated, it will always maintain a 21 million coin supply cap. Therefore, bitcoin offers the potential to give accurate insight into supply-and-demand information. As we know, when we hit periods of economic stress, we are given feedback in the form of economic indicators (e.g., interest rates, equity prices, GDP). When we inflate the money supply to capitalize off the currency holders or dampen the underlying economic stress, we distort these economic indicators as we mask true supply and demand. This prevents the economy from accurately error-correcting.
Bitcoin, due to its lack of manipulation, does not allow any entity to capitalize off its currency holders or for the masking of stress through inflation. Instead, governments must offer value to society and solve underlying economic issues directly. This would allow one to see the world as it really is instead of one distorted by monetary expansion. With this in mind, bitcoin would expose the inflationary narrative for what it is, a way for the government to self-fund and capitalize off its currency holders.
Additionally, as individuals, we want our economic productivity to benefit us and those around us. With bitcoin, this increased productivity would accrue in the form of increased currency strength, which would allow the holders, rather than the government, to benefit. This is the case for the USD when they extract this increased productivity through inflation.
2. Decentralized: Bitcoin is a monetary system governed by rules, not rulers.52 No single entity has authority or control over bitcoin. With bitcoin’s decentralized nature, it doesn’t matter whether you are the president, an unbanked asylum seeker or a private doctor. Everybody has to play by the same rules. This would prevent influential figures from controlling monetary policy at the expense of the currency holders.
3. Self-Custody: Bitcoin is the first asset that allows the holder the ability to self-custody easily and securely. Doing so transfers power from the government and the third parties that custody our assets to the currency holders. This ensures that governments, banks and corporations act as service providers with their population and customers best interests at heart, rather than the overbearing, controlling entities that they are today.
How Come Bitcoin Sees Such Strong Opposition From Certain Individuals Within The Government?
Although Bitcoin is a technology that offers excellent benefits, we can see from the three benefits detailed above that bitcoin is at great odds with the current structure of our economy. Bitcoin directly impacts the government’s ability to capitalize off its population and currency holders as it undermines the U.S. and its currency monopoly. Therefore, it is evident why we see such opposition within the government.
Even after many rigorous studies disproving all major false narratives, bitcoin still regularly comes under fire. One study by the ex-deputy director of the CIA concluded that “the broad generalizations about the use of Bitcoin in illicit finance are significantly overstated.”53 Since 2016, only around 0.5% of bitcoin’s total transaction volume has been used for illicit activity. In comparison, within traditional finance illicit activity makes up between 2–4% of GDP. This is a stark difference to how Bitcoin is portrayed in the media, yet we continue to see misleading statements such as that by U.S. Treasury Secretary Janet Yellen,”I see the promise of these new technologies, but I also see the reality: Cryptocurrencies have been used to launder the profits of online drug traffickers; they’ve been a tool to finance terrorism.” It appears that the people in power are not interested in the truth. Instead, they are set on constructing the most damning narratives so that bitcoin is deemed detrimental to the economy in the eyes of the public.
Therefore, it does not matter that bitcoin is trying to solve financial oppression through monetary inclusion and equality. Bitcoin directly interferes with the government’s agenda by allowing individuals to opt out of inflation taxation, and so for this reason alone, bitcoin is portrayed as a threat to the U.S.
One may argue, why do we need bitcoin? Or, why not put someone in power who wants what’s best for the people? It is evident from history that people inherently want to protect their bloodline, wealth and power in society. Therefore, anyone in charge of a currency will usually end up abusing their power, and if the present person in power doesn’t, it’s just a matter of time before one will. Bitcoin removes this monetary temptation and creates an even playing field for all. Without temptation, political figures can focus on what’s best for society instead of what benefits them. Additionally, bitcoin allows the currency holders to have a say in monetary policy and ensure that any change is up to general consensus instead of those in power.
“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.” — James Madison, Federalist Paper No. 51
Conclusion
Many decades ago, Milton Friedman famously said, “There’s no such thing as a free lunch.” Those words still hold true today. As shown below, no nation in history has ever maintained its global hegemony indefinitely (this is known as the Triffin paradox).54 As the global reserve currency, the U.S. cannot maintain its reserve currency status, grow its manufacturing base and preserve its sovereignty.
Source: Rough Estimate of Relative Standing Great Empires Chart55
With the U.S. directing all its energy and resources into protecting the petrodollar in order to maintain its reserve currency status, we inevitably see sacrifices when it comes to healthcare, infrastructure and domestic manufacturing. In time, these sacrifices will end up being the demise of the U.S. and its global hegemony. It will then become clear that its attacks on bitcoin and other entities that infringed on the government’s ability to capitalize off its currency holders were just the U.S.’ desperate final attempts to defend its global positioning.
However, until this day comes, bitcoin will most likely continue to be seen as a threat by the US. Therefore, it does not matter that bitcoin may be one of the most ingenious and economically productive inventions to date, or that it has an incredible ability to channel human ingenuity, transfer power and spur on the construction of a true decentralized free-market capitalist system. While the U.S. holds its global hegemony, bitcoin interferes with its ability to self-fund and push its inflationary narrative. Therefore, under the lens of the government, bitcoin does not aid economic productivity and, just like Hussein and Gaddafi, will be tarnished by the people in power and be positioned as a threat to society. As an advocate for equality and an investor in bitcoin, this attack on bitcoin can be disheartening. However, we must keep in mind:
a) The powers that be are incentivized to prevent the adoption of bitcoin as it impacts their ability to self-fund and continue their inflationary narrative. However, they cannot maintain this hegemony indefinitely.
b) Bitcoin paves the way for a new paradigm in monetary inclusion, equality and reduced financial oppression. It concurrently brings increased economic productivity, as it channels ingenuity and encourages innovation.
c) Bitcoin is a monetary system governed by rules, not rulers.56
Considering these points, one can more easily look through the fear, uncertainty and doubt (FUD) and advocate for a world of equality, where the population’s best interests are at heart and where decision-making is by consensus rather than power.
We should not let a fear of the U.S. and its overbearing nature dictate our decision to demand global monetary equality. Instead, we should embrace it. Let this fear be the fuel that stokes the fire of change. Bitcoin is attempting to transfer many millennia of centralized power through currency to the people. Of course, there will be hurdles, and, of course, there will be pushback, but that’s a small price to pay on the road toward freedom and equality.
Just like China, the Netherlands and the U.K., which all succumb to the Triffin paradox, so, too, will the U.S. But as with any global change in reserve currency comes opportunity, which brings up the important question: Who will pick up the mantle?
“I predict future happiness for Americans, if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.” — Thomas Jefferson
This is a guest post by Sebastian Bunney. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
References
1 Gallant, Chris. “How Central Banks Can Increase or Decrease Money Supply.” Investopedia, May 18, 2021, https://www.investopedia.com/ask/answers/07/central-banks.asp.
3 Federal Reserve. “Why Does the Federal Reserve Aim for Inflation of 2 Percent Over the Longer Run?” Federal Reserve, August 27, 2020, https://www.federalreserve.gov/faqs/economy_14400.htm.
4 Bunney, Sebastian. “When More Isn’t Better.” Bitcoin Magazine, May 12, 2021,
5 FRED. “Assets: Total Assets: Total Assets.” FRED, July 27, 2021, https://fred.stlouisfed.org/series/WALCL.; Google Finance. “S&P 500 Index.” Google, 2021, https://www.google.com/finance/quote/.INX:INDEXSP..
6 Hayes, Adam. “Financial Repression.” Investopedia, March 1, 2021,
11 Werner, Richard. “Can Banks Individually Create Money Out of Nothing?” Science Direct, December 2014, https://www.sciencedirect.com/science/article/pii/S1057521914001070.
12 Barone, Adam. “Bank Reserves.” Investopedia, July 25, 2021, https://www.investopedia.com/terms/b/bank-reserve.asp.
13 Americans for Financial Reform. “Wall Street Money in Washington.” CNBC, March 2021, https://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2021/04/14/AFR_Wall_Street_Money_in_Politics_2021.pdf.
14 Cigler, Allan J., Burdett A. Loomis, and Anthony J. Nownes. “Lobbying in the Shadows.” SSRN, October 7, 2014, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2507300.
15 fileandclaw322. “The History of the Hazard Circular.” File & Claw Archives, October 20, 2014,
17 Jankélévitch, Vladimir, and Ann Hobart. “Do Not Listen to What They Say, Look at What They Do.” JSTOR, Spring 1996, https://www.jstor.org/stable/1344022.
18 Ghosh, Iman. “How Much Do Countries Spend on Healthcare Compared to the Military?” Visual Capitalist, July 22, 2020, https://www.visualcapitalist.com/what-do-countries-spend-on-healthcare-versus-military/.
19 The National Council. “Federal Budget.” The National Council, 2015,
https://www.thenationalcouncil.org/topics/federal-budget/; NIMH. “Suicide.” NIMH, May 2021, https://www.nimh.nih.gov/health/statistics/suicide; Stimson Study Group. “Counterterrorism Spending: Protecting America While Promoting Efficiencies and Accountability” Stimson, May 2018,
20 Kenton, Will. “Nixon Shock.” Investopedia, July 1, 2021, https://www.investopedia.com/terms/n/nixon-shock.asp..
21 Amadeo, Kimberly. “Petrodollars and the System that Created It.” The Balance, November 22, 2020, https://www.thebalance.com/what-is-a-petrodollar-3306358.
22 Thiha Tun, Zaw. “How Petrodollars Affect the U.S. Dollar.” Investopedia, April 21, 2020,
23 Szmigiera, M. “Countries with the Highest Military Spending Worldwide in 2020.” Statista, May 7, 2021, https://www.statista.com/statistics/262742/countries-with-the-highest-military-spending/.
24 Perkins, John. Confessions of an Economic Hitman. San Francisco: Berrett-Koehler Publishers, 2004.
25 Kuo, Lily, and Niko Kommenda. “What Is China’s Belt and Road Initiative?” The Guardian, 2017, https://www.theguardian.com/cities/ng-interactive/2018/jul/30/what-china-belt-road-initiative-silk-road-explainer.
26 Younge, Gary. “A Hit Man Repents.” The Guardian, January 28, 2006,
32 Kessler, Glenn. “The Cheneys’ claim of a ‘deep, longstanding, far-reaching relationship’ between al-Qaeda and Saddam.” Washington Post, July 17, 2014,
34 Nelson, Brian. “Hugo Chavez.” Britannica, July 24, 2021, https://www.britannica.com/biography/Hugo-Chavez; The Associated Press. “Chavez Threatens to Stop Shipping Oil to U.S.” NBC News, February 10, 2008, https://www.nbcnews.com/id/wbna23098780.
35 Alvarez, Johannes, and James Fiorito. “Venezuelan Oil Unifying Latin-America.” Stanford University, June 2, 2005, https://web.stanford.edu/class/e297a/Venezuelan%20Oil%20Unifying%20Latin%20America.doc.
36 English, Telesur. “Venezuela on April 11.” Venezuela Analysis, April 14, 2015,
https://venezuelanalysis.com/analysis/11335.
37 Worldometer. “Oil Reserves by Country.” Worldometer, 2016,
https://www.worldometers.info/oil/oil-reserves-by-country/; Faria, Julia. “Proved Crude Oil Reserves in Africa in 2020, by Country.” Statista, June 1, 2021,
41 Cockburn, Patrick. “Amnesty Questions Claim that Gaddafi Ordered Rape as Weapon of War.” Independent, October 22, 2011, https://www.independent.co.uk/news/world/africa/amnesty-questions-claim-gaddafi-ordered-rape-weapon-war-2302037.html; Brown, Ellen. “Why Qaddafi had to go: African gold, oil and the challenge to monetary imperialism.” Theecologist, March 14, 2016,
42 Levitt, Matthew. “Evidence of Financial Links Between Saudi Royal Family and Al Qaeda.” New York Times, n.d., https://www.nytimes.com/interactive/projects/documents/evidence-of-financial-links-between-saudi-royal-family-and-al-qaeda. Accessed July 16, 2021.
43 Sanger, David E. “Biden Won’t Penalize Saudi Crown Prince Over Khashoggi’s Killing, Fearing Relations Breach.” New York Times, February 28, 2021, https://www.nytimes.com/2021/02/26/us/politics/biden-mbs-khashoggi.html.
44 U.S. Department of State. “U.S. Relations With Saudi Arabia.” December 15, 2020,
https://www.state.gov/u-s-relations-with-saudi-arabia/; Gladstein, Alex. “The Hidden Costs of the Petrodollar.” Bitcoin Magazine, April 29, 2021,
46 BBC. “North Korea: What We Know About Its Missile and Nuclear Programme.” BBC, April 14, 2021, https://www.bbc.com/news/world-asia-41174689.
47 Fensom, Anthony. “Could North Korea Become the Next Oil and Gas Mega Producer?” The National Interest, December 28, 2019, https://nationalinterest.org/blog/buzz/could-north-korea-become-next-oil-and-gas-mega-producer-109066.
48 Jankélévitch, Vladimir, and Ann Hobart. “Do Not Listen to What They Say, Look at What They Do.” JSTOR, Spring 1996, https://www.jstor.org/stable/1344022.
49 Azam, Muhammad. “Does Military Spending Stifle Economic Growth? The Empirical Evidence from non-OECD Countries.” ScienceDirect, December 2020,
53 Josh Kirshner and Thomas Schoenberger. “An Analysis of Bitcoin’s Use in Illicit Finance.” Crypto Council for Innovation, April 6, 2021, https://cryptoforinnovation.org/resources/Analysis_of_Bitcoin_in_Illicit_Finance.pdf.
54 Smith, Tim. “How The Triffin Dilemma Affects Currencies.” Investopedia, June 25, 2019,
